Wealthfront's Portfolio Review tool - good for young investors, but account aggregation a missed opportunity
8 February 2016
It's heartening when, in an industry often criticized for its rapacity, a firm tries to do right by its investors. By launching its Portfolio Review Tool, Wealthfront is building on the white hat reputation it earned when it rolled out an asset allocation service for free back in 2012. As I promised in a previous post
, I decided I would use the tool to take my personal portfolio of roughly a dozen low cost ETFs for a test run. I found the above dashboard that popped up (after I logged into to my brokerage account through the Wealthfront portal) to be of modest value to me. I don’t pay much in fees (the most I fork out for an ETF is 30 bps for a dividend growth fund), and I’m unclear as to how Wealthfront can do me better. That said, I think Portfolio Review is a useful tool for investors trying to build a portfolio, given the six figure impact that excessive fees can have on a portfolio over a lifetime. And for an investor who has had the time to build up assets, tax loss harvesting and avoiding cash drag makes a lot of sense. Helpful, just not the big picture
The flag on the diversification column represents the biggest bone I have to pick with Portfolio Review, although this is an issue I see not only with Wealthfront, but many other robo-advisors generally. The specific problem is the lack of an asset aggregation tool. Unlike those provided by Jemstep and FutureAdvisor, Wealthfront asset allocation recommendations do not take into account assets held elsewhere. This can result in incongruous portfolio outcomes for those clients (a large minority, I suspect) who keep just a small percentage of their holdings at Wealthfront. In my case, to get an asset allocation even roughly in tune with my overall investment thinking, I had to answer Wealthfront profiling questions in a way that exaggerated my tolerance for risk. In that light, it strikes me as curious that (having removed the blinders to assets held elsewhere) Wealthfront would apply the same insular perspective to non Wealthfront accounts. What if I hold accounts with multiple brokerages and/or custodians? The Portfolio Review tool can’t tell me if I’m diversified or not. Now, I like Wealthfront and I realize that account aggregation may not be a big lure for their target clients, many of whom are young investors just building their nest eggs. But surely Wealthfront would like to attract tech savvy Gen X’ers like me? Hmm... Maybe the solution to the diversification challenge posed by Portfolio Review is to move all my assets to Wealthfront. Or is that perhaps the objective?